Bank of Tanzania cut its discount rate to 12 percent from 16 percent effectively from March 6, the first time it has lowered borrowing costs since 2013, after a steep drop in private-sector credit growth last year.

There were expectations that the move "will enhance credit growth and reduction in lending rates," central bank Governor Benno Ndulu said in a statement late on Friday after a meeting with chief executives of commercial banks in Dar es Salaam.

Bank of Tanzania's decision to slash the rate it charges commercial lenders to borrow from it -- one of its main monetary policy tools -- came after lending to the private sector grew by 2.5 percent in 2016 after expanding 26.8 percent a year earlier, according to official data.

The International Monetary Fund warned in January that tight fiscal and monetary policies threatened Tanzania's forecast for growth of around 7 percent in fiscal year 2016/17, which ends in June. (Reporting by Fumbuka Ng'wanakilala; editing by Elias Biryabarema and Lisa Shumaker)